Yesterday we discussed how Richard Fisher, president of the Federal Reserve Bank of Dallas, is slated to retire next year, and the impact that this could have on monetary policy. Today we discuss another recently announced retirement at the Fed that could also impact on monetary policy.
How the Federal Reserve administers monetary policy and interest rate changes is key to senior housing activity because of the effect interest rates have on valuations and deals in the sector. The Federal Reserve has kept the fed funds rate near zero since 2008, which has helped drive considerable merger and acquisition activity. If the Fed raises interest rates, it is conceivable that the pace of mergers and acquisitions would slow down until the market adjusts to the newer, higher interest rates. For this reason, senior housing owners, operators, and investors currently seeking capital to refinance debt, purchase senior housing assets, or for other purposes, should contact Cambridge Realty Capital to learn more about the attractive financing options it offers for senior housing transactions.
Charles Plosser Announces his Retirement
Charles Plosser, president of the Federal Reserve Bank of Philadelphia and a member of the Federal Reserve’s Open Market Committee (FOMC), recently announced that he will retire from the Federal Reserve on March 1, 2015. Mr. Plosser has served as the president of the Federal Reserve’s Philadelphia branch since 2006 and is widely recognized as one of the chief inflation hawks at the central bank. Because of Mr. Plosser’s fears that continued low interest rates will eventually lead to significant inflation, he has urged his colleagues at the Fed to move quickly to raise interest rates. He also dissented in the FOMC’s most recent vote on policy because of his objection to the Fed’s decision to keep interest rates low for a “considerable time” after ending its bond buying stimulus program.
Most members on the FOMC disagree with Mr. Plosser’s views, as evidenced by the numerous times the Committee voted to maintain its near zero interest rate policy. Mr. Plosser’s position on the FOMC is a rotating one, and he was scheduled to leave the committee next year. Although his replacement will not sit on the FOMC, he or she will still hold considerable sway over interest rates by participating in the central bank’s deliberations on monetary policy. A search committee is currently looking for suitable candidates to replace Mr. Plosser. Once a candidate is chosen, the committee will forward his or her name to the Philadelphia bank’s board of directors and the Federal Reserve’s Board of Governors for final approval.
If Mr. Plosser is replaced by another hawkish banker, then the dynamic at the Fed will not change significantly. However, if his replacement is more amenable to maintaining today’s low interest rate policy, then the dynamic at the Fed could change substantially, and interest rates could remain low for a longer period than currently projected. For this reason, senior housing participants should keep abreast of the search committee’s progress in finding Mr. Plosser’s replacement in order to determine if the chosen candidate will change the dynamic at the Fed in any way, and therein alter the central bank’s stance on interest rates.